We recently compiled a list of the 10 Worst Performing REITs in 2024. In this article, we are going to take a look at where Ares Commercial Real Estate Corporation (NYSE:ACRE) stands against the other worst performing REITs in 2024.
The Real Estate Sector Post-Fed Rate Cut
Real estate is one of the sectors that has been looking forward to the Fed rate cuts. While the rate cuts were kicked off with a half-percentage point reduction on September 18, the probability of future rate cuts remains on the horizon. Logan Mohtashami, HousingWire analyst, deems the post-Fed cut housing market confusing for the consumer. In an interview with CNBC, he reiterated that consumers naturally assume mortgage rates dropping with progress on inflation. If mortgage rates drop to 6% and stay there, sales which are trending at the lowest levels in history for the third calendar year could grow. In his opinion, the monetary policy is still restrictive for housing although expanding for the economy. On the optimistic side, he sees price growth cooling and active inventory growing. However, rates need to stay at the 6% level as shooting up from there won’t work for the housing market.
Regarding commercial real estate, the Fed’s shift in policy is “the most notable green shoot” according to Wells Fargo analysts since it lays the groundwork for a commercial real estate recovery although it is not a magic bullet. On September 23, Willy Walker, Walker & Dunlop Chairman and CEO appeared on CNBC to analyze the state of commercial real estate post-Fed rate cuts. According to him, the easing phase has driven volumes in commercial real estate. He expects the sector to be healthy as rates go down further. Regarding the residential real estate in the prevailing US political scenario, he sees a huge policy shift between Biden calling for 5% rent control on a nationwide basis to Kamala Harris calling for 3 million new homes over the next four years. Walker suggested a nice thing in the current circumstances would be a proposal from Trump’s admin, similar or distinct to Harris’, entailing what he is going to do about housing since housing is a major US issue.
Previously, Warren Wachsberger of Eldridge Acre Partners joined CNBC to emphasize that the short-term issues facing US commercial real estate have created an investment opportunity. These issues include higher interest rates, less credit availability, and supply-demand imbalances. Hence, the market stress creates a lot of opportunity to invest in the sector.
Our Methodology:
In order to compile a list of the 10 worst performing REITs in 2024, we used a stock screener to find the stocks that have fallen significantly on a year-to-date basis. The 10 worst performing REITs in 2024 have been ranked in ascending order of their year-to-date declines. We have also included the number of hedge fund holders for each stock, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Ares Commercial Real Estate Corporation (NYSE:ACRE)
Year-to-Date Decline: 33.69%
Number of Hedge Fund Holders: 8
Ares Commercial Real Estate Corporation (NYSE:ACRE) is a REIT that primarily engages in originating and investing in commercial real estate loans and related investments. It provides flexible and reliable financing solutions for commercial real estate owners and operators through its national direct origination platform.
ACRE has a lot to offer through its scaled national direct origination platform, quality diversified portfolio, longstanding and extensive credit capabilities, and attractive dividend yield opportunity. Additionally, the REIT is being managed by a subsidiary of Ares Management Corporation, a global alternative investment manager that operates an integrated platform across five business groups. It serves as a leader in leveraged finance, private credit, and secondaries and has over 20 years of track record of attractive risk-adjusted returns through market cycles.
For the second quarter of 2024, Ares Commercial Real Estate Corporation (NYSE:ACRE) reported a GAAP net loss of $6.1 million. While the financial results got impacted amidst the REIT tried resolving risk rated 4 and 5 loans and maintaining financial flexibility, it is confident that such actions will lead to higher levels of portfolio growth and earnings in the future. The firm also announced the appointments of Tae-Sik Yoon to Chief Operating Officer and Jeff Gonzales to Chief Financial Officer and Treasurer.
The REIT had total originated commitments of $2.2 billion across 42 loans, as of June 30. Other than boasting a well-diversified portfolio across geographies and asset classes, Ares Commercial Real Estate Corporation (NYSE:ACRE) benefits from the broad Ares firm.
Overall ACRE ranks 6th on our list of the worst performing REITs in 2024. While we acknowledge the potential of ACRE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ACRE, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
